Proposition 116 gives businesses a break on taxes

Ballot measure reduces amount of property levy on equipment

PHOENIX - Arizona voters are going to get a chance to lower property taxes - but not for themselves.

Proposition 116 would give a break to businesses, dramatically reducing the amount of property tax they must pay on their equipment - a reduction that would likely come at the expense of homeowners, who would have to pay more to make up for what businesses no longer pay.

Businesses now pay property tax on every piece of equipment they own, as well as on their land and buildings.

Arizona voters previously approved an inflation-adjusted exemption that currently eliminates the tax on the first $68,000 in equipment.

The ballot measure would boost that exemption sharply, using a formula tied to median earnings in the state. Farrell Quinlan, state director of the National Federation of Independent Business, figures the formula would let companies have up to $2.4 million of their equipment untaxed.

He estimates the change will free 93 percent of all firms in the state from having to pay the tax.

For businesses, more than saving money is at stake.

Companies whose property is worth less than the exemption do not have to bother computing what their equipment is worth, factoring in depreciation, much less write out a check every year.

So far the measure has not generated any opposition. In fact, it got referred to the ballot by lawmakers earlier this year without a single dissenting vote.

But that could be because it was written in a way to blunt possible opposition, not only from lawmakers but from voters.

Generally speaking, cities, counties and school districts figure out how much money they need and set a property tax rate that will bring in that amount, based on the district's total net assessed valuation.

If some property is taken off the tax rolls, that lowers the district's net assessed valuation, which means the overall tax rate, for everyone, has to go up to raise the same amount of cash.

Proposition 116 is crafted so that the new, higher exemption would apply only to equipment purchased starting next year, so the current $68,079 exemption still applies to equipment businesses already own.

Even with the phase-in, there would be some tax shift, largely to homeowners.

A report prepared by the Joint Legislative Budget Committee figured that the difference on a home in Mesa with a primary assessed value of $114,000 would be just $3.25 by 2015.

However, Quinlan conceded the added burden for homeowners would grow with time, as companies replace old equipment with new equipment that does not wind up on the tax rolls. But he argued approval of the measure ultimately will create more revenues overall.

"We're trying to incentivize investment," he said. The tax on business equipment penalizes firms that are dependent on equipment.

A change in policy also could provide some impetus for companies to buy new equipment.

Right now, equipment goes on the tax rolls at its purchase price. It is then depreciated according to set schedules.

But under state law, it always retains some residual value if it is still in use.

Quinlan said from the perspective of his group of small-business owners, this measure means a lot more to them than some of the other economic incentives lawmakers approved in the last two years.

He said reductions in capital gains taxes affect only a limited group. And certain income tax credits benefit only those who can spend the money in the first place to take advantage of them. "The benefit of 116 is that every taxpayer that owns equipment and machinery can take advantage of this," he said.

Quinlan acknowledged that even without any organized opposition, it's going to take an effort to get the proposal approved, if for no other reason than when voters are unsure or confused, they more often than not will vote "no."

He already has produced two TV commercials.

Ballot measures

All this week, the Star is publishing a series explaining the nine state and one city propositions appearing on this year's general election ballot. The schedule for those stories is:

• Monday: Proposition 119 and Proposition 118.

• Tuesday: Proposition 120.

• Today: Proposition 116 and Proposition 117.

• Thursday, Sept. 27: Proposition 114 - Limiting the right to sue for damages if someone is injured while committing a crime.

• Friday, Sept. 28: Proposition 115 - Giving the governor more power in the selection of judges.